Slowdown in India to continue and might aggravate: OECD

NEW DELHI: The slowdown in India's economic activity is likely to continue and might aggravate in the coming months, Paris-based economic think tank said on Monday, scotching hopes that Asia's third-largest economy had bottomed out in the fourth quarter of the last fiscal.

India's economy expanded only 5.3% in January-March 2012 quarter, the lowest pace of growth in the last nine years.

Since then stock markets have rebounded on the hope that the economy will pick up pace on the strength of some policy action from the government, softer commodity prices and some improvement in sentiment.

The Organisation for Economic Co-operation and Development (OECD) in its monthly release of composite leading indicators (CLI) has said that India's economic activity points strongly to a slowdown with growth further decelerating from the long-term average.

"The CLIs for India and China point strongly to a slowdown with economic activity falling below the long term trend," the OECD has noted in its latest report.

The CLI index is designed to anticipate turning points in economic activity compared to long-term trend, points to an easing of economic activity in all major economies including Japan, United States of America, Russia, China, Germany and other countries in the Eurozone.

India's CLI has been moderating since January, pointing to a prolonged slowdown in economic activity. Taking the long-term average as 100, the CLI measures economic activity using Gross Domestic Product (GDP) as the reference point. The closer the index reading of a country is to 100, the higher is its economic growth prospects.

India's index reading moderated from 98 in April to 97.8 in May. The reading stood at 98.6 in January and has been consistently declining since.

India's industrial growth has dropped to 0.1% in April, but the Reserve Bank of India decided not to cut rates in its June 16 monetary policy review after inflation rose unexpectedly. Most economists have pegged growth estimates for the current year at about 6% though some are now beginning to see a reading below that as well.

With fiscal deficit for the current year pegged at 5.1% of GDP, the government is in no position to stimulate demand. "At the present moment, we do not have the kind of fiscal space we had in 2008. To contain the deficit at the budgeted level will itself require a number of policy decisions with respect to subsidies," C Rangarajan, chairman of Prime minister's economic advisory council told ET in an interview on Sunday.

Brazil is the only economy where growth is picking up according to the CLI. While its economic performance has been below that of the long-term average, the growth momentum has been picking up since February and is likely to improve in the coming months. Economic growth in the UK will remain weak while growth momentum in the US will moderate.

China's divergence from the long-term trend is greater with a 1.68% annual decline in index reading. While the combined growth cycle outlook for the euro area is bleak, stronger economies of France and Germany will continue to grow but at a weaker pace.